Monday, August 10, 2009

THERE'S NO FREE CABLE IN THE GAME OF OLIGOPOLY

It’s only a matter of time before people start asking the obvious question.

“Why in fuck’s garden am I paying $147 a MONTH to watch television?”

This is the question I asked myself a couple of weeks ago while adding up our household’s monthly expenses. Seems like just yesterday my cable bill was $35. How did we get here?

When did the cable bill feel more like a monthly shakedown? And why do we reflexively pay whatever they say it’s worth without questioning it? Because alternative would be anti-American!

Ours is a culture of connectedness. We love being in the know. Unplug that connection and we end up on the information fringe wondering what everyone else is talking about. The information fringe is not the most desirable place to be, unless you're moving to Idaho and swearing off human interaction altogether. In which case, your cable bill is likely the least of your problems.

The bottom line is, if you want to function socially in this society, you have to have access to some basic info-tainment. You have to have cable.

So we fork it over – month after coffer-draining month.

I don’t know about you, but my monthly cost mysteriously climbs a little higher with every statement. $114. $123. $142. $156. $177. Go back and look at yours over the past year. Upsy daisy!

When times are good and consumer confidence is soaring, we don’t really question highway robbery – we just stick our hands up in the air with a smile and say, “Take all you want, we’ll make more!”

But in tighter times, as our nation’s “hopeful” leader projects unemployment figures above 10% in the near term, more and more people are starting to think about what they’re getting for their money.

And for our cable money, I’d say we’re getting screwed.

CLUB CABLE IS ALL THE RAVE

It’s all there in black and white.

Your monthly statement outlines everything you “get” for price you are paying. But if you read between the line items you’ll see that the cable company is merely passing along someone else’s content…for a fee. And that fee – consistently my highest household bill – is established by two old, white businessmen making a $1 bet in the bathroom over how much they can charge us before we cancel. Thanks to our unhealthy obsession with information, Randolph and Mortimer Duke have us by the short and curlies.

CONSIDER THIS

Unlike every other utility bill you pay, cable costs are not based on how much TV you consume. You pay full price for it every month whether you use it or not. It doesn’t matter how many hours or channels you watch in a month, you will pay the same amount.

In essence, the cable fee is all about ACCESS. It’s the $20 cover charge you eagerly hand the doorman at the hot new nightclub. It’s a platter full of all-u-can-eat TV. It’s a front row seat on the couch.

And if you don’t like the price, don’t buy it. Right?

That’s certainly true in a competitive environment where other companies can step in and provide the same or similar service for less. Competition tends to be good for consumers because it forces companies to provide more for less.

But if you closely evaluate your options, you’ll see there’s very little competition in the cable market.

The cable industry is a classic example of an oligopoly, in which a few companies enjoy complete, unchecked control over an entire market.

If you want to stay connected via phone, television, or Internet, and depending on where you live, you have limited options.

Here I am in the nation’s third most populated metropolitan area and I have exactly TWO cable television options, and the most significant difference between them is the logo on their statement.

What about satellite?

The dish companies have taken considerable market share away from the cable companies in recent years, billing themselves as lower-cost alternatives to cable, but they live and die by the same, lucrative business model that charges a monthly access fee. You don’t buy the dish and call it a day…you have to SUBSCRIBE to a monthly SERVICE.

Make no mistake about it – satellite communications companies are part of the oligopoly.

But the news isn’t all bad. Here’s a look at the future:

http://bit.ly/xTygC

Companies like this one are probably why the cable companies are hell bent on raking it in hand over fist while they can. The captains of cable are no dummies. They see the writing on the wall, like oil barons panicking and price gouging before the green revolution takes hold.

MARKETING BRILLIANCE!

If you were in charge of marketing for one of these cable companies, you’d have a pretty big job. You’d have to convince people, somehow, that they’re getting a great value for all that money. And that’s not an easy task when folks like me are out here with a megaphone screaming, “Why in fuck’s garden are we paying all this money for cable??!?!?”

I mean, how would you talk otherwise rational people into making monthly payments of $150 for access to anything?

I’m in marketing, so I’ll tell you how.

BIG numbers in colorful fonts!

We’re trained to assume that prices MUST be good when they’re blown up huge on a postcard or in a newspaper ad. We’re bombarded by so many offers, we don’t have the time or attention span to focus on them all. We just trust that the offer MUST be good or why else would they be showing it off like it's the best deal since the Louisiana Purchase.

Out of curiosity, I recently went to Comcast.com and looked up their normal, non-promotional price for basic cable. BASIC cable. Not the expanded basic – just access to what they consider your “basic” channels. I found it in the small print.

$59.98 a month.

I was speechless. $60 a month for BASIC cable? How is that even remotely reasonable? Am I so out of touch with the cost of things that I don’t recognize real value anymore? This is their starting cost, remember – everything else is an add-on. The next tier. Premium channels. Converter box rental. DVR. HDTV. All extra.

Reality is obscured, of course, by the really big number in the colorful font:

$29.99/month!

Now THAT sounds reasonable. If only it were true.

CABLE IS NOT REALLY PRO-CHOICE

You do have choices when it comes to ordering cable service. You don’t have to order 450 channels, all the top tier pay channels, and the kitchen sink. You can scale it down to something a little more reasonable, like 250 channels and HBO.

What you CAN’T do is the one thing that you would like to do: pick your own line up. And it’s not because they can’t manage this from a technology standpoint – it’s because it would hammer their bottom line. This is how they make their money.

They disguise their packages as choices – but you really don’t have much of a choice.

We are forced to select an all-or-nothing “package” and pay a set cost, regardless of how much we watch. They call it a “service” fee. I don’t know what your experience has been with your cable company, but “service” is probably not the best word to describe that fee.

Even the most caffeinated and ADD-riddled among us have little use for the overwhelming number of channel options that come with these packages.

Sane people simply don’t have the need for 300 channels. Or 200. Or even 100 for that matter. In fact, if you took an audit of the programs you watch over the course of a week, you’d likely find that you watch around a dozen or so channels – give or take a few.

The Consumers Union recently reported, “The average household watches no more than a dozen to 17 channels.”

The rest of those channels are just noise, and nuisances you must flip past to get to the channels and programming you do want to watch.

If this is the case, why can’t we just pick the channels we actually watch and pay for those? How much are we paying for the OPTION to watch the other 288 channels?

BASIC CABLE MATH

Let’s say you get a promotional package that offers 300+ channels for $59.99. That comes to about .20 cents per channel per month. If you only watch 12 of them, that’s just $2.40 out of the $59.99 you’re paying. So you’re essentially paying $57.59 every month for the option to watch something else.

Deal or no deal? I don’t need to be a banker to know the answer to that one.

IN DEFENSE OF CABLE

To be fair, it’s important to acknowledge the relationship between cable channel producers (Disney, Fox, Viacomm, etc.) and the cable companies. The channel producers sell the rights to rebroadcast their content to the cable company, which then passes along that cost to us.

Guess what happens when a channel like, say, ESPN, starts enjoying a larger audience share? They assume their content is worth more and charge the cable company more money to offer it as part of their “basic” package.

And guess who ends up paying for that? YOU do. This is how basic cable gets jacked up to $60 month. I don’t know about you, but I think the cable channel producers are double-dipping. They take in ad revenue, airing commercials we are forced to endure…and then also charge cable companies for permission to carry their content. I declare shenanigans!

The cable companies contend bundling is the best way to provide maximum viewing options while keeping costs down. But as channels become more popular, the producers start bumping up their prices knowing the cable companies will pay because the demand is there. And the cable companies get blamed for the costs. They ought to use some of their oligopoly influence and stand up for consumers for a change. Tell those double-dipping producers to fly a kite.

WHY ARE THERE ADS ON CABLE TELEVISION?

Think about this for a second. Broadcast television has been free for decades.

FREE. No charge. Turn on your set and watch.

How is that possible?

Yes – ADVERTISING. Advertising dollars finance the development, production and broadcast of content, which is in turn leveraged to collect more advertising dollars, and so on and so forth. It’s a nice little system that makes complete sense because we can all see exactly how it works.

Content is free to us because advertisers pay for it. Maybe we watch their ads, maybe we don’t. But that’s the drawback to advertising: you can’t MAKE people watch or read your shit. You can only put it out there and hope.

As a creative advertising professional, it’s often been my challenge to develop compelling, relevant ads that resonate with people. This is how we support and sustain the cycle of free content.

Good ads work, and keep companies investing in the medium. But as ad dollars shift, the medium starts to fade. Look at what happened to the print news industry. Companies moved their marketing dollars online, primarily at the expense of newsprint. Without ad support, the medium stands on the verge of collapse, and desperately needs to change its communications ideology to reestablish consumer relevance if it is to remain a viable channel.

How does this relate to cable television? Well, there’s the free-content-supported by-advertising model…and then there’s another model.

HBO, believe it or not, surfaced in 1972. They had a different approach. Instead of offering free content supported by advertisers, they went straight to consumers and said: If you pay us directly, we’ll provide uninterrupted programming.

37 years later, they’re still alive and kicking – for two simple reasons:

1.) The content is good2.) People are willing, when they’re able, to pay for it

And this just begs the question: Why should we pay to watch channels that are supported by advertising? Why aren’t advertising-supported cable channels free anymore, like they’ve always been?

TNT. Bravo. HGTV. VH1. The History Channel. They all sell commercial time to support the production and distribution of the content they broadcast. They’re on the “free” TV model, yet we pay for them like we do for channels that don’t have advertising. Why? Somewhere along the way the cable companies changed the rules on us and we didn’t notice.

STOCKPILE CABLE NOW!Consider this. Cable is not a finite resource like the rest of the utilities you pay for. If you use more heat in the winter, you’re going to have a bigger bill because you’re consuming finite resources that someone else can’t use. Not so with cable.

The more television you watch does not leave less television for someone else.

If you use more gas, electricity, or water, you’re consuming resources that someone else can’t use – so individual usage is an important determining factor in establishing the cost.

With cable television, this is not the case. There’s a signal pumping 24/7 to your TV whether it’s on or not – and it’s not in danger of running out. There aren’t going to be rolling cable blackouts if too many people tune into American Idol at the same time. Your hometown isn’t going to announce “no cable” hours to conserve television. And you’re certainly not “wasting” cable if you let it run it overnight. Electricity, maybe...but not cable.

Cable isn’t a traditionally distributed commodity with a market value based on the amount we use versus the finite amount that is available. And that means the price of cable is almost completely arbitrary!

THE COST OF DELIVERING THE WORLDWe’re paying for unlimited access to a virtually unlimited resource – and that cost can be whatever the market will bear. Right now, the market is bearing a lot more than it needs to, in my humble opinion.

Why do we do it? Why do we let the cable companies fleece us repeatedly month after month? I understand there are hard costs associated with maintaining the infrastructure of the network. But what exactly are those costs?

Except in the case of a handful of local cable access channels, cable companies aren’t responsible for creating any of the programming content we watch on television. They just provide the connectivity – that magical switch they can flip without warning from a desk in Mumbai and shut you down instantly if you miss a payment. (Don’t ask me how I know that)

Many cable companies use independent contractors to fulfill their installation and service technician needs, while outsourcing their customer service and technical support needs to the Asian subcontinent because it’s marginally cheaper than employing your out-of-work cousin Glen. Maybe if Glen would quit smoking he wouldn’t be so damn expensive to insure. But now I digress…

The point is, what kind of operational and infrastructure maintenance costs are really required here?

It’s not hard to imagine a company like Comcast employing about 6 people here in the U.S. and running the entire operation out of the back of a pimped out van. What are they are physically providing in exchange for unlimited access to a virtually limitless resource? My home still has the same cables running to it we had last month. And the month before. And the month before that.

AN ALTERNATIVE THAT MAKES MORE SENSEWhy can’t cable companies bill us for what we use like the rest of the utility companies? Bill me per channel if you want. Or by the hour. At least then I can decide which channels, or which shows, to watch and pay for instead of paying for hundreds of channels that I never asked for, don’t want, and will never watch.

Then at least I would have some control over my monthly costs instead of the control I have now: $0 for no service, $60 for basic TV, $100 for expanded TV, $150 for God’s control room.

Let me build my own channel line-up. Or give me cable minutes like a cell phone plan. Give me some kind of a billing system that doesn’t make me feel like I’m getting mugged every month.

BUT WAIT – THERE’S MORE!Reviewing my bill I also noticed that my cable company makes me pay to rent THEIR video converter boxes, which I need in order to receive their service. That’s like selling someone a car and making them pay extra for the keys...every time they drive it!

SO NOW WHAT?

Rest assured, the model will be changing again...thanks to the Internet, of course. There are already a handful of sites boasting free television through your computer – one of which I offered earlier.

In the same way that companies like Skype are offering FREE phone calls via the Internet (which really works, by the way), it’s only a matter of time before someone figures out a way to deliver the content we crave without the arbitrary and excessive costs meted out by the middle man and his double-dipping accomplices.

Until then, however, if we want inside Club Cable, we need to hand that cash to the man at the door...because the government is letting these clowns play unregulated in the oligopoly gardens.

2 comments:

Schmidty
said...

Your payment helps pay for your local cable access "talent" like that awesomely cool Eric Schmidt who does sideline reporting and restaurant features for Prime Time Chicago. He eats and drinks so you don't have to. And if you had a choice to choose which channels you'd watch, I bet CN100 isn't one of them, so keep paying dammit! :)

There are still many of them who do not know what exactly a satellite TV is and how it can change your television viewing habits. It is wireless system that delivers television programming directly to the viewers’ house or business. It consists of a dish antenna which is about 18 to 24 inches in diameter that is perched on your terrace or roof top. It takes very less space than those cable wires that dangle around your house. Television and satellite stations transmit programming via radio signal.